Low Oil Prices Are Great for Consumers… Aren’t They?

Low Oil Prices Are Great for Consumers… Aren’t They?

This past Friday OPEC had its meeting in Vienna and the only thing the cartel could agree on is not to agree at all.

OPEC was unable to reach a decision on how much oil to produce, and the current production will remain as is, at about 31.5 million barrels per day. This decision sent crude tumbling from $42 to as low as $39.60 – the lowest since late August when crude crumbled to six-year lows. OPEC leader Saudi Arabia chose not to answer desperate pleas from less affluent members like Nigeria and Venezuela who need higher oil prices to balance their national budgets, to cut production, which was expected.

“I don’t see how anybody in their right mind thought that the Saudis were going to cut production,” said Mike Breard, oil company analyst at Hodges Capital Management in Dallas.

At the same time surging oil production from non-OPEC nations like the U.S. has created a deep divide inside OPEC.

Saudi Arabia has pushed OPEC down a painful approach: aggressively pump oil to keep prices low and crowd out high-cost producers. The long-term strategy, launched a year ago, has yet to yield real dividends as U.S. output remains near all-time highs, though some cracks have emerged.

No resolution is in sight for the massive supply glut weighing on oil prices. Low oil prices are expected to persist at least for the next couple of years. Global oil prices have already dropped more than 50 percent in the past year. This time last year heating oil prices were about $3/gallon and now they are about $1.50/gallon.

And while low oil prices may seem like a great benefit for the consumer at present, in the long term it could lead to a crash in the energy market, deeply affecting the economy. It’s a two-edged sword, really. Low oil and gas prices mean many in the energy industry will have to face reductions and cut jobs and spending.

Oil and gas extraction contributed to about 8.3 percent of total private-sector job growth in Texas from 2009 through 2014 according to Cheryl Abbot, regional economist with the Bureau of Labor Statistics’ office in Dallas. New jobs in oil and gas extraction and support increased to a peak of 305,000 last December and fell 11 percent to 274,500 last month.